A Fragile Market
By Paul Cherney
Wednesday's market reiterates the fragile nature of the marketplace. There have been many times over the past few months that I have seen set-ups which carry high probabilities for advancing prices, only to see investor sentiment soured by an overnight earnings warning or shortfall.
The big problem right now is that long-term trends are the product of long-term beliefs in the ability of companies to earn more money next quarter than they have earned in the year over year comparison, but the recent announcmeent and warnings from companies like Cisco (CSCO ) and yesterday's Nortel (NT ) pronouncement are not offering positive guidance and therefore, the only money really playing the markets is short-term traders.
The Nasdaq's break above the 1930-1770 band of support did not last long. Immediate intraday resistance is now 1865-1893. Bigger resistance is 1907-1979 with a focus 1910-1930 and another focus 1947-1974. Major resistance looks like 1987-2031. When a major index closes near the lows of the session (which the Nasdaq did on Wednesday), I am reluctant to embrace any opening move higher as anything other than misguided bargain hunters or bears covering overnight shorts. Any opening lift usually fails within the first 30 minutes and prices roll back over and print in negative territory.
What if we open lower?
There is a possiblity that there could be a brief captulation and an attempt to move higher. Immediate support for the NASDAQ is 1843-1794. If prices do move beneath 1794 and spend more than three or four minutes there without garnering buying interest then the market could falter to print near 1770. The 1815-1770 area represents good suport but if 1770 fails, prints near 1715 cannot be ruled out.
The Put/Call Ratios from the CBOE might offer insight into the fear factor during Thursday's session. Intraday Total Put/Call ratios above 1.00 usually herald a short-term wash-out.
The S&P 500 is within a band of resistance which runs 1136-1190.
Immediate support for the S&P 500 is 1150-1138 then 1142-1117 which makes the 1142-1138 area a focus of support. Immediate (intraday) resistance is 1158-1182 within this zone is a focus of resistance 1166-1180.
Note: I did have a signal trip as of the close on Thursday (3/22/01) which historically has very high odds that the current advance in the S&P 500 will ultimately rollover and undercut the 1117.58 level on a closing basis. This signal usually sees the undercut within 6 weeks.
Cherney is Market Analyst for Standard & Poor's